MFA Financial, Inc. (MFA)

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MFA Financial, Inc. (MFA)

Q4 2013 Earnings Conference Call

February 13, 2014 10:00 AM ET


Danielle Rosatelli – Investor Relations

William S. Gorin – Chief Executive Officer

Craig L. Knutson – President and Chief Operating Officer

Stephen D. Yarad – Chief Financial Officer

Gudmundur Kristjansson – Senior Vice President


Daniel K. Altscher – FBR Capital Markets & Co.

Douglas M. Harter – Credit Suisse Securities LLC

Steve C. DeLaney – JMP Securities LLC

John A. Hall – Wells Fargo Securities LLC

Daniel Furtado – Jefferies & Company, Inc.

Richard B. Shane – JPMorgan Securities LLC

Christopher R. Donat – Sandler O’Neill & Partners LP



Ladies and gentlemen, thank you for standing by, and welcome to the MFA Financial Inc. Fourth Quarter 2013 Earnings Call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions, and instructions will be given at that time. (Operator Instructions) And as a reminder, this conference is being recorded.

I’ll now turn the conference over to Danielle Rosatelli. Please go ahead?

Danielle Rosatelli

Good morning. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflects management’s beliefs, expectations and assumptions as to MFA’s future performance and operation. When used, statements that are not historical in nature, including those containing words such as will, believe, expect, anticipate, estimate, plan, continue, intend, should, could, would, may or similar expressions are intended to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made.

These types of statements are subject to various known and unknown risks, uncertainties, assumptions, and other factors including those described in MFA’s Annual Report on Form 10-K for the year ended December 31, 2012, its quarterly reports on Form 10-Q for the quarters ended March 31, June 30, and September 30, 2013 and other reports that it may file from time-to-time with the Securities and Exchange Commission. These risks and uncertainties and other factors could cause MFA’s actual results to differ materially from those projected, expressed or implied in any forward-looking statements it makes.

For additional information regarding MFA’s use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA’s fourth quarter 2013 financial results. Thank you for your time.

I would now like to turn this call over to Bill Gorin, MFA’s Chief Executive Officer.

William S. Gorin

Thank you, Danielle, and I want to welcome everyone on the snowy day to MFA’s fourth quarter 2013 financial results webcast. With me today are Craig Knutson, MFA's President; Gudmundur Kristjansson, Senior Vice President; Steve Yarad, CFO; and a number of other executives.

Now despite variability, monetary policy, interest rates and pre-payments, MFA generated consistently good results throughout the year, and in the fourth quarter. This is due in large part to our focus on strong fundamental analysis, when investing in credit sensitive residential mortgage assets.

To summarize the quarter, in the quarter we generated net income of $74.8 million or $0.20 per share. Book value per common share increased approximately 3% to $8.06 as of December 31 from $7.85 at the end of the third quarter. This growth was due primarily to non-Agency MBS price appreciation.

In the fourth quarter, we again transferred a sizable amount. In this case, $47 million from credit reserve to accretable discounts, bringing the total transferred in the year to approximately $208 million.

Due to the increases in accretable discount, and to changes in the forward curve, the loss-adjusted yield in our non-Agency MBS portfolio increased to 7.77% in the fourth quarter. now, hopefully you all have access to the webcast.

Turning to Slide 3, you will see, as I mentioned, net income per common share was $0.20, the dividend was $0.20, and the estimated taxable income per common share was also $0.20. With that dividend, we end the year approximately $0.17 per share undistributed in terms of taxable income distributions.

Turning to Page 4, which I think is a pretty unique metric for our company relative to all financial companies throughout the year. despite change in interest rates, and pre-payment fees, our key metrics remained generally consistent throughout 2013. Spreads started the year at 2.32%, ended the year at 2.34% with not much variation in between.

Debt-to-equity ratio, started the year at 3.1 times, ended the year at 3.0 times, again without much variation during the year. In general, throughout the year, through all four quarters, over 55% of MFA’s assets remains in agency hopeful assets with the remainder in non-Agency MBS.

Turning to Page 5; you can see as I mentioned, book value started the quarter at $7.85 grew to $8.06 primarily due to change in the value of non-Agency MBS. Page 6, and hopefully this will be the last time we need to have a separate slide on taxable income in our earnings call.

We’ve now distributed stockholders an amount equal to all taxable income for years prior to 2013. We currently estimate that for 2013, REIT taxable income was approximately $374 million, while distributions not attributed to prior years was approximately $313 million. Now we have until the filing of our 2013 tax return, which should be around September of 2014 to declare a distribution of any REIT taxable income not previously distributed.

Again, talking about consistency, we ended the quarter with our interest rate sensitivity as measured by net duration below one. Gudmundur Kristjansson will give more detail about the interest sensitivity of MFA’s assets and our distribution.

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